At its meeting held on Wednesday, February 10, 1999 the Council of the Croatian National Bank reviewed recent economic developments and considered the basic guidelines of monetary policy for the coming period. The Council of the CNB was also informed about the situation in Dubrovacka banka and the progress achieved so far in the process of its rehabilitation, as well as about the preparations for the implementation of the Croatian Gross Settlement System. In addition, the Council made several decisions, acting in accordance with its authority.

In 1998 industrial production grew by 3.7 percent and the number of tourist night-stays by 3.2 percent. Other indicators, however, point at the slow down of economic activity, which is reflected in a number of monetary indicators. Money supply decreased by 1 percent, total liquid assets grew by 12 percent, commercial bank lending by 23 percent and total foreign currency deposits by approximately 20 percent, while kuna deposits recorded no growth.

Having in mind primary tasks of the Croatian central bank, the Council emphasized high importance of the successful maintenance of a satisfactory inflation rate and the stability of the exchange rate in 1998, the significant reduction of the current account deficit in 1998 compared to the disturbing deficit in 1997. The CNB Council also pointed out that, despite the crisis in a few banks, foreign currency savings in domestic banks increased by 23 percent.

Taking account of the high sensitivity of the Croatian public to movements in the exchange rate of the kuna, the Croatian central bank increasingly intervened in the foreign exchange market at the end of 1998 and at the beginning of this year to prevent excessive seasonal exchange rate fluctuations. Although it is well known that the kuna exchange rate is not pegged to the German mark and that cross rate relationships between leading foreign currencies are also subject to changes, it has been observed that the Croatian public reacts with considerable nervousness to every movement in the exchange rate of the kuna and tends to interpret it as an announcement of more serious disturbances. It should, however, be noted that, for example, the euro, common currency of the most developed West-European countries, depreciated against the US dollar by 3.8 percent during January, while kuna depreciated against the German mark about 1 percent in the same period.

Having in mind the fact that the exchange rate of the domestic currency is considered the most recognizable indicator of economic stability, the Council of the Croatian National Bank believes that the central bank should continue alleviating more significant seasonal fluctuations of the exchange rate. This issue should be addressed in the aforementioned way even more so because very soon - due the expected foreign exchange inflow based on the euro-bond issue - the exchange rate of the kuna could face appreciation pressures. At the Wednesday meeting, members of the CNB Council emphasized again the necessity of the continuous coordination between monetary and fiscal policy, since only by such coordination macroeconomic stability can be maintained and the framework for sound economic growth created.

At the Wednesday meeting, the Council of the CNB was briefed on preparations for the implementation of the Croatian Gross Settlement System. Practical testing of the system in banks and savings banks has already been completed and final control activities are underway. It is expected that the system will start functioning in mid March.

In addition, the Council of the Croatian National Bank approved the nomination of Ms. Andjelka Cavlek for member of the management board of the Societe Generale d.d. Paris branch in Zagreb, and the nomination of Ms. Iva Prasnicki for member of the management board of Stedionica Zlatica d.o.o. Zagreb.